Chapter-1

Introduction

1
 1.1 PURPOSE OF THE STUDY

1.To choose best company for mutual investment between Reliance and SBI.
2.To know the risk and return associated with the mutual fund.

1.2 SCOPE OF THE STUDY

1.To make people aware about concept of mutual fund.

2. To advice where to invest or not to invest.
3. To provide information regarding types of mutual fund & which is beneficial for
whom.

1.3 RESEARCH OBJECTIVE OF THE STUDY

1. To make a comparative analysis of equity based mutual fund in India.

2. To analyse the performance of private sector Mutual Funds: Reliance Equity fund
along with SBI Equity fund.
3. To analyse which provide better returns.
4. To analyse concept and parameters of mutual funds.
5. To know how many people are satisfied by their investment(in reliance or SBI).
6. To know People behaviour regarding risk factor involved in mutual fund.

2
 1.4 RESEARCH METHODOLOGY OF THE STUDY

TYPE OF RESEARCH

Explortory Reserch
Descriptive Reserch

1.4.1 RESEARCH DESIGN

Sample Size 100

Sampling unit The target population for the research consists of the people
who are in the age group of 25 to 40. This group of population was targeted
because these populations are the potential customers of Mutul Funds.
Area Covering Delhi and NCR.
Sampling Method Non Probablity Sampling Method(Judgemental and
convenience sampling)

1.4.2 SOURCES OF DATA COLLECTION

Both primary and secondary data have been collected to meet our objectives. The
research would be conducted from the source of primary data collection. Secondary
data would help us in knowing the trends prevailing in the Mutul Fund market and
would help us in analyzing and interpretation of the primary data.

Primary Data Questionnaire.

Secondary Data Internet , Newspaper , books and Business Magazines.

3
1.4.3 Instrument for data collection
Questionnaire.
Survey.

1.4.4 LIMITATIONS
Howsoever impeccable a thing may seem to be there always dwell some possibilities
of failure and incompleteness. The result of this work also subjects to some of
limitations, which are as follows:
The study is confined only to a small segment of the entire population due to
monetary and time constraints and hence the results are applicable only to
Delhi and NCR.
Some respondents were not interested in giving answer and they appeared to
be busy.
Lack of experience.
Company Officials did not revel any information , which my have affected
my study , as the information that was required was internal to the company.

4
5
INTRODUCTION

MUTUAL FUND INDUSTRY

The mutual fund industry in India is one of the emerging industries in India. Today,
the Indian mutual fund industry has 40 players. The number of public sector players
has reduced from 11 to 5. The public sector has gradually receded into the
background, passing on a large chunk of market share to private sector players.
The Association of Mutual Funds in India (AMFI) is the industry body set up to
facilitate the growth of the Indian mutual fund industry. It plays a pro-active role in
identifying steps that need to be taken to protect investors and promote the mutual
fund sector.
It is noteworthy that AMFI is not a Self-Regulatory Organisation (SRO) and its
recommendations are not binding on the industry participants. By its very nature,
AMFI has an advisors or a counsellors role in the mutual fund industry. Its
recommendations become mandatory if and only if the Securities and Exchange
Board of India (SEBI) incorporates them into the regulatory framework it stipulates
for mutual funds.
The Indian mutual fund industry follows a 3-tier structure as shown below:

6
 1. Sponsors

They are the individuals who think of starting a mutual fund. The Sponsor
approaches SEBI, the market regulator and also the regulator for mutual funds. Not
everyone can start a mutual fund. SEBI will grant a permission to start a mutual fund
only to a person of integrity, with significant experience in the financial sector and a
certain minimum net worth. These are just some of the factors that come into play.

2. Trust
Once SEBI is satisfied with the credentials and eligibility of the proposed Sponsors,
the Sponsors then establish a Trust under the Indian Trust Act 1882. Trusts have no
legal identity in India and thus cannot enter into contracts. Hence the Trustees are the
individuals authorized to act on behalf of the Trust. Contracts are entered into in the
name of the Trustees. Once the Trust is created, it is registered with SEBI, after
which point, this Trust is known as the mutual fund.

3. Asset Management Company (AMC)

The Trustees appoint the AMC, which is established as a legal entity, to manage the
investors (unit holders) money. In return for this money management on behalf of
the mutual fund, the AMC is paid a fee for the services provided. This fee is to
be borne by the investors and is deducted from the money collected from
them.
The AMC has to be approved by SEBI and it functions under the supervision of its
Board of Directors, and also under the direction of the Trustees and the regulatory
framework established by SEBI. It is the AMC, which in the name of the Trust, that
floats new schemes and manages these schemes by buying and selling securities.

HISTORY OF MUTUAL FUND INDUSTRY

7
The mutual fund industry started in 1963 with the formation of the Unit Trust of
India which was the initiative of the Government of India and the Reserve Bank of
India.
The history of mutual funds in India can be broadly classified into four distinct
phases : -
First Phase : 1964 1987
An Act of Parliament established Unit Trust of India(UTI) on 1963. It was set up by
the Reserve Bank of India and functioned under the Regulatory and administrative
control of the RBI. In 1978, UTI was delinked from RBI and the IDBI took over the
regulatory and administrative control in place of RBI. The first scheme launched by
UTI was Unit Scheme, 1964. At the end of 1988 UTI had Rs. 6700 crores of AUM.
Second Phase : 1987 1993 (Entry of Public Sector Funds)
In 1987, it was the entry of non-UTI, public sector mutual funds setup by public
sector banks and the Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC). SBI Mutual Fund was the first non-UTI
Mutual Fund established in June,1987.

Mobilization
Amount Assets Under as % of gross
1992-93
Mobilized Management Domestic
Savings

UTI 11,057 38,247 5.2%

Public Sector 1,964 8,757 0.9%

Total 13,021 47,004 6.1%

Third Phase : 1993 2003 (Entry of Private Sector Funds)

With the entry of the private sector funds in 1993, a new era started in the Indian
Mutual Fund Industry, giving the investors a wider choice of fund families. Also,
1993 was the year in which first Mutual Fund Regulations came into being, under
which all mutual funds, except UTI were to be registered and governed. The
erstwhile Kothari Pioneer ( now merged with Franklin Templeton) was the first
private sector mutual fund registered in July 1993. The industry now functions under
SEBI Regulations, 1996. At the end of January 2003, there were 33 mutual funds
8
with total assets of Rs. 1,21,805 crores. The UTI with Rs. 44,541 crores of AUM was
way ahead of other mutual funds.
Fourth Phase Since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit
Trust of India with assets under management of Rs.29, 835 crores as at the end of
January 2003, representing broadly, the assets of US 64 scheme, assured return and
certain other schemes.
Growth in Assets under Management

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations.
The Assets under Management(AUM) have grown at a rapid pace over the past few
years at a CAGR of 35% for the past few years at a CAGR of 35 percent for the five-
year period from 31 March, 2005 to 31 March, 2009. Over the 10-year period from
1999 to 2009 encompassing varied economic cycles, the industry grew at 22%
CAGR.
This growth was despite two falls in the AUM the first being after year 2001 due to
dotcom bubble burst and the second in 2008, consequent to the global economic
crisis.
AUM Base and Growth Relative To the Global Industry

9
India has been amongst the fastest growing markets for mutual funds since 2004 in
the five-year period from 2004 to 2008 (as of December) the Indian mutual fund
industry grew at 29 percent CAGR as against the global average of 4 percent . Over
this period, the mutual fund industry in mature markets like the US and France grew
at 4 percent, while some of the emerging markets viz. China and Brazil exceeded the
growth witnessed in the Indian market.

AUM to GDP Ratio

The ratio of AUM to Indias GDP , gradually increased from 6 percentin 2005 to 11
percent in 2009. Despite this however, this continues to be significantly lower than
the ratio in developed countries, where the AUM accounts for 20-70 percent of the
GDP.

10
WHAT IS AN INVESTMENT?
In finance, the purchase of a financial product or other item of value with an
expectation of favorable future returns. In general terms, investment means the use
money in the hope of making more money.
There are three fundamentals of investment : -
Safety
Liquidity
Return

INVESTMENT AVENUES Investments

Debt Insurance Equity

Small RBI Primar Secondar

Saving Bonds
Fixed Return Options y
Variable Return y Market
s Market
Options
PPF

1. Post Office 1. Mutual Funds

2. PostFund
Public Provident 2. Shares and Stock
3. Office
Bank Fixed Deposits Markets
4. Government Securities or Gilts 3. Gold & Silver
5. RBI Taxable Bonds 4. Property
6. Insurance 5. Foreign Exchange
7. Company Debentures
8. Company Fixed Deposits
9. Infrastructure Bonds

WHAT IS A MUTUAL FUND?

A mutual fund is a legal vehicle that enables a collective group of individuals to:
i. Pool their surplus funds and collectively invest in instruments / assets for
a common investment objective.
11
 ii. Optimize the knowledge and experience of a fund manager, a capacity
that individually they may not have.
iii. Benefit from the economies of scale which size enables and is not
available on an individual basis. Investing in a mutual fund is like an
investment made by a collective.

Concept of Mutual Funds

Many Investors with common financial objectives

pool their money

Investors, on a proportionate basis, get mutual fund

units for the sum contributed to the pool

The money collected from investors is invested into

shares, debentures and the other securities by the fund
manager
An individual as a single investor is likely to have lesser amount of money at
disposal than say, a group of friends put together. Now, lets assume that this group
The fund manager realize gains or losses, and collects
of individuals is a novice in investing and so the group turns over the pooled funds to
dividend or interest income
an expert to make their money work for them. This is what a professional Asset
Management Company does for mutual funds. The AMC invests the investors
money on their behalf into various assets towards a common investment objective.
Any capital gains or losses from such investment are
Hence, technically speaking, a mutual fund is an investment vehicle which pools
passed on to the investors in proportion of the number
investors money and invests theof
same for and
units heldonby
behalf
themof investors, into stocks,
bonds, money market instruments and other assets. The money is received by the
AMC with a promise that it will be invested in a particular manner by a professional
manager (commonly known as fund managers). The fund managers are expected to
honor this promise. The SEBI and the Board of Trustees ensure that this actually
happens.
12
When an investor subscribes for the units of a mutual fund, he becomes part owner of
the assets of the fund in the same proportion as his contribution amount put up with
the corpus (the total amount of the fund). Mutual Fund investor is also known as a
mutual fund shareholder or a unit holder.
Any change in the value of the investments made into capital market instruments
(such as shares, debentures etc.) is reflected in the Net Asset Value (NAV) of the
scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net
of its liabilities. NAV of a scheme is calculated by dividing the market value of
scheme's assets by the total number of units issued to the investors.
For example:
A. If the market value of the assets of a fund is Rs. 100,000
B. The total number of units issued to the investors is equal to 10,000.
C. Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00
D. Now if an investor 'X' owns 5 units of this scheme
E. Then his total contribution to the fund is Rs. 50 (i.e. Number of units held
multiplied by the NAV of the scheme).

MUTUAL FUNDS STRUCTURE

The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as a fund
established in the form of a trust by a sponsor to raise monies by the Trustees through
the sale of units to the public under one or more schemes for investing in securities in
accordance with these regulations.

13
These regulations have since been replaced by the SEBI (Mutual Funds) Regulations,
1996. The structure indicated by the new regulations is indicated as under. A mutual
fund comprises four separate entities, namely sponsor, mutual fund trust, AMC and
custodian. The sponsor establishes the mutual fund and gets it registered with SEBI.

The mutual fund needs to be constituted in the form of a trust and the instrument of
the trust should be in the form of a deed registered under the provisions of the Indian
Registration Act, 1908.

The Custodian maintains the custody of the securities in which the scheme invests. It
also keeps a tab on corporate actions such as rights, bonus and dividends declared by
the companies in which the fund has invested. The Custodian is appointed by the
Board of Trustees. The Custodian also participates in a clearing and settlement
system through approved depository companies on behalf of mutual funds, in case of
dematerialized securities.

14
The sponsor is required to contribute at least 40% of the minimum net worth (Rs. 10
crore) of the asset management company. The board of trustees manages the MF and
the sponsor executes the trust deeds in favour of the trustees. It is the job of the MF
trustees to see that schemes floated and managed by the AMC appointed by the
trustees are in accordance with the trust deed and SEBI guidelines

15
Jensen (1967) derived a risk-adjusted measure of portfolio performance (Jensens
alpha) that estimates how much a managers forecasting ability contributes to
funds returns. Sharpe, William (1994) suggested the Sharp- Ratio technique for
the measurement for the performance measurement of the MF. Berkowitz et.al,
(1997), supports the argument & states that, past fund performance influences
individual investment decisions along with implying strong incentives for managers
increase the performance of Mutual funds.

Mishra, Rehman (2000) measured MF performance using lower partial moment

Risk from the lower partial moment is measured by taking into account only those
states in which return is below a pre-specified target rate like risk-free rate.
Brealey and Mayers (2002) supported Quality of Earnings as a key performance
measure. Earnings can be manipulated by adopting different accounting policies.
Further supported by Grahm et al. (2002), analyst rely on the primarily data,
reported cash flows and the use of the accounting conservations in evaluating
companies. Ramasamy et al, (2003), agreed that three elements consistent past
performance, size of funds & cost of transaction effects the performance.

Roy & Deb (2003) used conditional performance evaluation on a sample of 89

Indian MF schemes measuring with both unconditional and conditional form of
CAPM model. The results suggest that the use of conditioning lagged information
variables improves the performance of mutual fund schemes, causing alphas to
shift towards right and reducing the number of negative timing coefficients. Rao,
Ravindran (2003) evaluated performance in a bear market through Relative
Performance Management index & risk return analysis.

Panwar et.al (2005) uses Residual Variance (RV) as the measure of MF portfolio

16
diversification. RV has a direct impact on shape fund performance measure.
Kacperczyk et.al (2005) demonstrated that unabsorbed information create values
for some funds. Return gap helps to predict future fund performance & investors
should use additional measures to evaluate the performance.

Agrawal (2006) analyze the Indian Mutual Fund Industry pricing mechanism with
empirical studies on its valuation. The study reveled that the performance is
affected saving and investment habits of the people.

17
 Chapter-3

Company Profile

18
Reliance Mutual Fund

TheRelianceMutualFundisoneofthemostpopularandleadingmutualfundin
India.TheFundisownedbyAnilDhirubhaiAmbaniGroupandwithrespecttonet
worthitranksamongthetopthreeofalltheprivatefinancialserviceprovidersin
India.ItisanISO9001:2000certifiedcompany,whichoffersinnovativemutual
fundproductstoawidepoolofcustomers.TheReliancemutualfundproductsare
availableinhundredandfifteencitiesacrossIndia.Itisoneofthefastestgrowing
mutual fundinIndiaandthemainreasonofits popularityisthatithasawide
portfolio of products that meets the requirements of each and every type of
investors.TheRelianceMutualFundisheadedbyMr.VikrantGugnanitheCEO
ofthecompany.

DetailsofRelianceMutualFund:

TheschemesofRelianceMutualFundarebeingmanagedbyRelianceCapital
AssetManagementLtd,whichisasubsidiaryofReliance.

RelianceCapitalLtdholds93.37%ofthepaidupcapitaloftheRelianceCapital
AssetManagementLtd.

Thevalueofthecumulativeassetsthatarebeingmanaged(alsocalledAssets
UnderManagement(AUM))amountedtoRs.80,779crores,asonDec31st

19
 2007.

TheinvestorbaseofRelianceMutualFundisover43.67lakh.

Equity/GrowthSchemes:

Theaimofgrowthfundsistoprovidecapitalappreciationoverthemediumtolong
term.Suchschemesnormallyinvestamajorpartoftheircorpusinequities.Such
fundshavecomparativelyhighrisks.Theseschemesprovidedifferentoptionstothe
investorslikedividendoption,capitalappreciation,etc.andtheinvestorsmaychoose
anoptiondependingontheirpreferences.Theinvestorsmustindicatetheoptionin
theapplicationform.Themutualfundsalsoallowtheinvestorstochangetheoptions
atalaterdate.Growthschemesaregoodforinvestorshavingalongtermoutlook
seekingappreciationoveraperiodoftime.

RelianceEquityFundGrowth
(3StarFundICRAOnlineMFRank3YearMarch2009)

FUNDFACTS

ObjectivesoftheFund

The primary investment objective of the scheme is to seek to generate capital

appreciation & provide long-term growth opportunities by investing in a
portfolio constituted of equity & equity related securities of top 100 companies by
market capitalization & of companies which are available in the derivatives segment
from time to time and the secondary objective is to generate consistent returns by
investing in debt and money market securities.

Fundfeatures

TypeofScheme OpenEnded FundManager SunilSinghania.

Nature Equity SIP
Option Growth STP
InceptionDate Mar28,2006 SWP

20
FaceValue 10 Expenseratio(%) 1.87
(Rs/Unit) PortfolioTurnover 114
FundSizeinRs.Cr. 2232.02asonJun Ratio(%)
30,2009

LastDividend NA
Declared
MinimumInvestment 380053
(Rs)
Purchase Daily
Redemptions
NAVCalculation Daily
EntryLoad AmountBet.0to19999999thenEntryloadis2.25%.and
AmountBet.20000000to49999999thenEntryloadis1.25%.
andAmountgreaterthan50000000thenEntryloadis0%.
ExitLoad Ifredeemedbet.0Yearto1Year;andAmountBet.0to
49999999thenExitloadis1%.andAmountgreaterthan
50000000thenExitloadis0%.

NetAssetValue(NAV)
LatestNAV 12.76asonJul15,2009
BenchmarkIndexS&PNifty 4,233.50asonJul15,2009
52 WeekHigh 13.54asonJun10,2009
52 WeekLow 8.21asonMar9,2009

PORTFOLIOAttribute
P/E 21.90asonJun2009
P/B 3.74asonJun2009
DividendYield 1.16asonJun2009
MarketCap(Rs.incrores) 71,812.69asonJun2009
Large 55.20asonJun2009
Mid 18.27asonJun2009
Small NA
Top5Holding(%) 27.60asonMay2009
No.ofStocks 21
ExpenseRatio(%) 1.87

Fig:STYLEBOX

21
SectorAllocation(%)

Auto&Autoancillaries 3.89
Banks 10.75
ComputersSoftware&Education 10.11
CurrentAssets 24.33
Diversified 1.20
Entertainment 3.72
Housing&Construction 4.70
Metals 1.45
Miscellaneous 2.20
Oil&Gas,Petroleum&Refinery 9.88
Pharmaceuticals 8.81
PowerGeneration,Transmission&Equip 4.85
Steel 2.96
Telecom 9.52
Textiles 1.63

Fig.:SectorwiseallocationofRelianceEquityGrowthFund

Figure5:AssetAllocation(%)

Asset Alocation
22
 24.33 Equity
Debt
Cash & Eq.

75.67

AssetAllocation(%)

Equity Debt Cash&Equivalent

75.67 0.00 24.33

23
SBIMutualFund

SBI Mutual Fund is governed by SBI Asset Management Company Limited (AMC).
The SBI mutual fund was approved by SEBI in June 2000. Equity Funds, Balanced
Funds, and Debt Funds are the mutual fund schemes offered by SBI Mutual Fund.

AnOverviewofSBIMutualFund
SBI Mutual Fund has witnessed significant growth in the past few years. It is
regulated by SBI Asset Management Company Limited (AMC) which works as an
Asset Management Company (AMC) for SBI Mutual Fund. SBI Asset Management
Company Limited (AMC) is a Joint Venture concern between the large-scale housing
finance company SBI and British investment firm Standard Life Investments Limited.

The SBI Asset Management Company Limited conducts the activities carried out by
the SBI Mutual Fund and manages the assets of various mutual fund schemes. The
August 2006 report states that the fund has assets of Rs. 25,892 crores under Asset
Management Company (AMC).

SBI Asset Management Company Limited (AMC) entered into an agreement with
Zurich Insurance Company (ZIC) with the aim to develop the asset management
business in India in the year 2003. Following to this, all the mutual fund schemes of
Zurich Mutual Fund in India got transferred to SBI Mutual Fund and gained the name
of SBI schemes.

DetailsofSBIMutualFund
SBIAsset Management Company Ltd(AMC)was setuponDecember 10,1999
under the Companies Act, 1956. It got the approval to function as an Asset
ManagementCompanyfortheSBIMutualFundbySEBIonJune30,2000.AMC
wasappointedinordermanagetheSBIMutualFund.TheregisteredofficeofSBI
AssetManagementCompanyLimited(AMC)islocatedatRamonHouse,3rdFloor,
H.T.ParekhMarg,169,BackbayReclamation,Churchgate,Mumbai400020.

SchemesofSBIMutualFund

24
 SBIEquityFund

SBIPrudenceFund
SBICapitalBuilderFund
SBITaxSaver
SBITop200Fund
SBIHighInterestFund
SBICashManagementFund
SBISovereignGiltFund

EquityFunds,BalancedFunds,andDebtFundsarethebroadcategoriesofmutual
fundschemesofferedbySBIMutualFund.

SBI EQUITY FUND GROWTH

(3-STAR FUND ICRA Online MF Rank3 Year-March 2009)

FUNDFACTS

OBJECTIVE

Aimsatprovidingcapitalappreciationthroughinvestmentspredominantlyin
equityorientedsecurities

FUND FEATURES

TypeofScheme OpenEnded FundManager AnandLaddha

Nature Equity SIP
Option Growth STP
InceptionDate Jan1,1995 SWP
FaceValue 10 Expenseratio(%) 1.86
(Rs/Unit) Portfolio 80.18
FundSizeinRs. 3870.79asonJun Turnover
Cr. 30,2009 Ratio(%)

LastDividend NA
Declared
Minimum 380053
Investment(Rs)
Purchase Daily
25
Redemptions
NAVCalculation Daily

EntryLoad AmountBet.0to49999999thenEntryloadis2.25%.and
Amountgreaterthan50000000thenEntryloadis0%.
ExitLoad Ifredeemedbet.0Monthto12Month;andAmountBet.0to
49999999thenExitloadis1%.andAmountgreaterthan
50000000thenExitloadis0%.

NETASSETVALUE(NAV)

LatestNAV 176.82asonJul17,2009
BenchmarkIndexCNX500 3,542.20asonJul17,2009
52WeekHigh 178.02asonJun10,2009
52WeekLow 91.23asonMar9,2009

PortfolioAttributes

P/E 21.00asonJun2009
P/B 3.90asonJun2009
DividendYield 1.57asonJun2009
MarketCap(Rs.incrores) 38,760.36asonJun2009
Large 53.56asonJun2009
Mid 40.49asonJun2009
Small 2.98asonJun2009
Top5Holding(%) 21.96asonMay2009
No.ofStocks 50
ExpenseRatio(%) 1.86

Fig:StyleBox

26
Auto&Autoancillaries 2.87
Banks 18.89
Chemicals 0.41
ComputersSoftware&Education 9.33
ConsumerDurables 4.50
CurrentAssets 2.97
Electricals&ElectricalEquipments 7.18
Engineering&IndustrialMachinery 1.18
Entertainment 6.17
Fertilizers,Pesticides&Agrochemicals 0.85
Finance 6.39
Food&DairyProducts 5.74
Housing&Construction 6.10
Oil&Gas,Petroleum&Refinery 4.79
PersonalCare 1.32
Pharmaceuticals 13.23
PowerGeneration,Transmission&Equip 1.68
Printing&Stationary 1.05
Steel 0.47
Telecom 3.11
Textiles 0.77
Transport&Travel 1.02

27
 Sectorallocation(%)
Fig.:SectorwiseallocationofSBIEquityGrowthFund

AssetAllocation(%)
Equity Debt Cash&Equivalent
97.03 0.00 2.97

Figure7:AssetAllocation%

Asset Alocation
2.97

Equity
Debt
Cash & Eq.

97.03

28
CHAPTER -4

About Topic

29
INTRODUCTION

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through
these investments and the capital appreciations realized are shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual Fund is the most
suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost. The flow
chart below describes broadly the working of a Mutual Fund.

30
A Mutual Fund is a body corporate registered with the Securities and Exchange Board of
India (SEBI) that pools up the money from individual/corporate investors and invests the
same on behalf of the investors/unit holders, in Equity shares, Government securities,
Bonds, Call Money Markets etc, and distributes the profits. In the other words, a Mutual
Fund allows investors to indirectly take a position in a basket of assets. Mutual Fund is a
mechanism for pooling the resources by issuing units to the investors and investing funds
in securities in accordance with objectives as disclosed in offer document. Investments in
securities are spread among a wide cross-section of industries and sectors thus the risk is
reduced. Diversification reduces the risk because all stocks may not move in the same
direction in the same proportion at same time. Investors of mutual funds are known as
unit holders.
The investors in proportion to their investments share the profits or losses. The mutual
funds normally come out with a number of schemes with different investment objectives
which are launched from time to time. A Mutual Fund is required to be registered with
Securities Exchange Board of India (SEBI) which regulates securities markets before it
can collect funds from the public.

ORGANISATION OF A MUTUAL FUND:- There are many entities involved and the
diagram below illustrates the organizational set up of a Mutual Fund:

31
Mutual Funds diversify their risk by holding a portfolio of instead of only one asset. This
is because by holding all your money in just one asset, the entire fortunes of your
portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk
is substantially reduced. Mutual Fund investments are not totally risk free. In fact,
investing in Mutual Funds contains the same risk as investing in the markets, the only
difference being that due to professional management of funds the controllable risks are
substantially reduced. A very important risk involved in Mutual Fund investments is the
market risk. However, the company specific risks are largely eliminated due to
professional fund management.

CHARACTERISTICS OF A MUTUAL FUND:-

A Mutual Fund actually belongs to the investors who have pooled their funds. The
ownership of the mutual fund is in the hands of the Investors.

A Mutual Fund is managed by investment professional and other Service

providers, who earns a fee for their services, from the funds.

The pool of Funds is invested in a portfolio of marketable investments.

The value of the portfolio is updated every day.

The investors share in the fund is denominated by units. The value of the units
changes with change in the portfolio value, every day. The value of one unit of
investment is called net asset value (NAV).

The investment portfolio of the mutual fund is created according to the stated
Investment objectives of the Fund.

32
OBJECTIVES OF A MUTUAL FUND:-

To Provide an opportunity for lower income groups to acquire without much

difficulty, property in the form of shares.

To Cater mainly of the need of individual investors, whose means are small?

To Manage investors portfolio that provides regular income, growth, Safety,

liquidity, tax advantage, professional management and diversification.

STRUCTURE OF A MUTUAL FUND:-

THE STRUCTURE CONSISTS OF:-

SPONSOR : Sponsor is the person who acting alone or in combination with another
body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net
worth of the Investment managed and meet the eligibility criteria prescribed under the
Securities and Exchange Board of India (Mutual Fund) Regulations, 1996. The sponsor is
not responsible or liable for any loss or shortfall resulting from the operation of the

33
Schemes beyond the initial contribution made by it towards setting up of the Mutual
Fund.

TRUST: The Mutual Fund is constituted as a trust in accordance with the provisions of
the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian
Registration Act, 1908.

TRUSTEE: Trustee is usually a company (corporate body) or a Board of Trustees (body

of individuals). The main responsibility of the Trustee is to safeguard the interest of the
unit holders and ensure that the AMC functions in the interest of investors and in
accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations,
1996, the provisions of the Trust Deed and the Offer Documents of the respective
Schemes. At least 2/3rd directors of the Trustee are independent directors who are not
associated with the Sponsor in any manner.

ASSET MANAGEMENT COMPANY (AMC): The AMC is appointed by the Trustee

as the Investment Manager of the Mutual Fund. The AMC is required to be approved by
the Securities and Exchange Board of India (SEBI) to act as an asset management
company of the Mutual Fund. At least 50% of the directors of the AMC are independent
directors who are not associated with the Sponsor in any manner. The AMC must have a
net worth of at least 10 cores at all times.

REGISTRAR AND TRANSFER AGENT: The AMC if so authorized by the Trust

Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar
processes the application form, redemption requests and dispatches account statements to
the unit holders. The Registrar and Transfer agent also handles communications with
investors and updates investor records.

INVESTORS PROFILE: An investor normally prioritizes his investment needs before

undertaking an investment. So different goals will be allocated to different proportions of

34
the total disposable amount. Investments for specific goals normally find their way into
the debt market as risk reduction is of prime importance, this is the area for the risk-
averse investors and here, Mutual Funds are generally the best option. One can avail of
the benefits of better returns with added benefits of anytime liquidity by investing in
open-ended debt funds at lower risk, this risk of default by any company that one has
chosen to invest in, can be minimized by investing in Mutual Funds as the fund managers
analyze the companies financials more minutely than an individual can do as they have
the expertise to do so. Moving up the risk spectrum, there are people who would like to
take some risk and invest in equity funds/capital market. However, since their appetite for
risk is also limited, they would rather have some exposure to debt as well. For these
investors, balanced funds provide an easy route of investment, armed with expertise of
investment techniques, they can invest in equity as well as good quality debt thereby
reducing risks and providing the investor with better returns than he could otherwise
manage. Since they can reshuffle their portfolio as per market conditions, they are likely
to generate moderate returns even in pessimistic market conditions.

Next comes the risk takers, risk takers by their nature, would not be averse to investing in
high-risk avenues. Capital markets find their fancy more often than not, because they
have historically generated better returns than any other avenue, provided, the money was
judiciously invested. Though the risk associated is generally on the higher side of the
spectrum, the return-potential compensates for the risk attached.

FACTORS IMPACTING THE INDUSTRY (PEST Analysis) : -

Political Factors:
a) Government Regulation: SEBI regulates the industry and every decision taken by them
impact the industry very quickly.
b) Stable constituency: The mutual fund industry can take long term decision if the
government is stable.
c) Fiscal policy: tax structure plays a very important role in the growth of the industry .If
the tax structure will be high than there will be less savings and investment. We have seen

35
the interest rate reducing continuously which boost the industry to sell products which are
better than the FDs, PF, NSC and KVPs.

Economic factors:
d) Market performance: The last five years witnessed a sharp rise in the markets. The
mutual fund industry basically works parallel with the markets. Suppose, if the markets
always be on downside, then the investors will not be so comfortable to invest. This will
reduce the market size drastically.
e) Global Standards: As the industry will grow better, India being a global economy, the
MF industry has to match to the global mature MF markets. They have to give due
emphasis on product innovation, cost reduction and penetration.
f) Inflation: price rise affects interest rate and reduces the chances of investment.

Social factors:
g) Consumer behaviour: this is very unpredictable and based on sentiments gets changed
very frequently, which sometimes makes selling of products difficult.
h) Income: The rich people are in bigger cities, so the mutual fund industry is much more
concentrated there.

Technological factors:
This is the era of information technology and due to net banking, online transaction,
online RTGS, clearing system helps the industry a lot.

BENEFITS OF MUTUAL FUND

36
There are numerous benefits of investing in mutual funds and one of the key reasons for
its phenomenal success in the developed markets like US and UK is the range of benefits
they offer, which are unmatched by most other investment avenues. We have explained
the key benefits in this section. The benefits have been broadly split into universal
benefits, applicable to all schemes and benefits applicable specifically to open-ended
schemes.

CATEGORIES OF MUTUAL FUNDS:

Mutual Fund can be classified as follows:-

37
Based on the Structure:-

1. OPEN-ENDED MUTUAL FUNDS:

The holders of the shares in the Fund can resell them to the issuing Mutual Fund
company at the time. They receive in turn the net assets value (NAV) of the shares at the
time of re-sale. Such Mutual Fund Companies place their funds in the secondary
securities market. They do not participate in new issue market as do pension funds or life
insurance companies. Thus they influence market price of corporate securities. Open-end
investment companies can sell an unlimited number of Shares and thus keep going larger.
The open-end Mutual Fund Company Buys or sells their shares. These companies sell
new shares NAV plus a Loading or management fees and redeem shares at NAV.In other
words, the target amount and the period both are indefinite in such funds.

2. CLOSED-ENDED MUTUAL FUNDS:-

A closedend Fund is open for sale to investors for a specific period, after which further
sales are closed. Any further transaction for buying the units or repurchasing them,
Happen in the secondary markets, where closed end Funds are listed. Therefore new
investors buy from the existing investors, and existing investors can liquidate their units
by selling them to other willing buyers. In a closed end Funds, thus the pool of funds can
technically be kept constant.

The asset management company (AMC) however, can buy out the units from the
investors, in the secondary markets, thus reducing the amount of funds held by outside
investors. The price at which units can be sold or redeemed Depends on the market
prices, which are fundamentally linked to the NAV. Investors in closed end Funds receive
either certificates or Depository receipts, for their holdings in a closed end mutual Fund.

38
Based on their investment objective:

1)EQUITY FUNDS:-

These funds invest in equities and equity related instruments. With fluctuating share
prices, such funds show volatile performance, even losses. However, short term
fluctuations in the market, generally smoothens out in the long term, thereby offering
higher returns at relatively lower volatility. At the same time, such funds can yield great
capital appreciation as, historically, equities have outperformed all asset classes in the
long term. Hence, investment in equity funds should be considered for a period of at least
3-5 years. It can be further classified as:

i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is
tracked. Their portfolio mirrors the benchmark index both in terms of composition and
individual stock weightages.
ii) Equity diversified funds- 100% of the capital is invested in equities spreading across
different sectors and stocks.
iii) Dividend Yield funds- It is similar to the equity diversified funds except that they
invest in companies offering high yield dividends.
iv) Thematic funds- Invest 100% of the assets in sectors which are related through some
theme. e.g. -An infrastructure fund invests in power, construction, cements sectors etc
. v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector
fund will invest in banking stocks.
vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.

2. BALANCED FUNDS:

Their investment portfolio includes both debt and equity. As a result, on the risk-return
ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual

39
funds vehicle for investors who prefer spreading their risk across various instruments.
Following are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

3. DEBT FUND:

They invest only in debt instruments, and are a good option for investors averse to idea of
taking risk associated with equities. Therefore, they invest exclusively in fixed-income
instruments like bonds, debentures, Government of India securities; and money market
instruments such as certificates of deposit (CD), commercial paper (CP) and call money.
Put your money into any of these debt funds depending on your investment horizon and
needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large portion
being invested in call money market.
ii) Gilt funds ST- They invest 100% of their portfolio in government securities of and T-
bills.
iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt
instruments which have variable coupon rate.
iv) Arbitrage fund- They generate income through arbitrage opportunities due to mis-
pricing between cash market and derivatives market. Funds are allocated to equities,
derivatives and money markets. Higher proportion (around 75%) is put in money
markets, in the absence of arbitrage opportunities.
v) Gilt funds LT- They invest 100% of their portfolio in long-term government
securities.
vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in
long-term debt papers.
vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure
of 10%-30% to equities.

40
viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that
of the fund.

THE WAY TO INVEST IN MUTUAL FUND

Mutual funds normally come out with an advertisement in newspapers publishing the
date of launch of the new schemes. Investors can also contact the agents and distributors
of mutual funds who are spread all over the country for necessary information and
application forms. Forms can be deposited with mutual funds through the agents and
distributors who provide such services. Now days, the post offices and banks also
distribute the units of mutual funds. However, the investors may please note that the
mutual funds schemes being marketed by banks and post offices should not be taken as
their own schemes and no assurance of returns is given by them. The only role of banks
and post offices is to help in. distribution of mutual funds schemes to the investors.
Investors should not be carried away by commission/gifts given by agents/distributors for
investing in a particular scheme. On the other hand they must consider the track record of
the mutual fund and should take objective decision.

LEGAL FRAME WORK OF SEBI & AMFI

REGULATORY ASPECTS OF MUTUAL FUNDS: In the year 1992, Securities and

exchange Board of India (SEBI) Act was passed. The objectives of SEBI are to protect
the interest of investors in securities and to promote the development of and to regulate
the securities market. SEBI formulates policies and regulates the mutual funds to protect
the interest of the investors.

GUIDELINES OF SEBI & AMFI

Mutual funds are regulated by the SEBI (mutual Fund) Regulations, 1996.

41
 SEBI is the regulator of all funds, except offshore funds.

Bank-sponsored mutual funds are jointly regulated by SEBI and RBI.

The bank-sponsored fund cannot provide a guarantee without RBI Permission.

RBI regulates money and government securities markets, in which mutual Funds
are invested.

Listed mutual funds are subject to the listing regulations of stock exchange.

Since the AMC and Trustee Company are companies, the Department of Company
affairs regulate them. They have to send periodic reports to the ROC (Register of
Companies) and the CLB (Company Law Board) is the appellate authority.

Investors cannot sue the trust, as they are the same as the trust and cant sue
themselves.

UTI does not have a separate sponsor and AMC.

UTI is governed by the UTI Act, 1963 and is voluntarily under SEBI Regulations.

UTI can borrow as well as lend also engage in other financial services activities.

Only AMFI certified agents can sell Mutual Fund units.

Mutual Funds Company is required to update the NAV of the scheme on the AMFI
website on a daily basis in case of open-ended scheme.

MUTUAL FUNDS IN INDIA AT A GLANCE

The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank the. The history of
mutual funds in India can be broadly divided into four distinct phases :-
First Phase 1964-87

42
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up
by the Reserve Bank of India and functioned under the Regulatory and administrative
control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took over the regulatory and administrative
control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the
end of 1988 UTI had Rs.6,700 crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation
of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June
1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund
(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda
Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set
up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had
assets under management of Rs.47,004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the
year in which the first Mutual Fund Regulations came into being, under which all mutual
funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer
(now merged with Franklin Templeton) was the first private sector mutual fund registered
in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The industry now
functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund
houses went on increasing, with many foreign mutual funds setting up funds in India and
also the industry has witnessed several mergers and acquisitions. As at the end of January
2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust
of India with Rs.44,541 crores of assets under management was way ahead of other
mutual funds.

43
Fourth Phase since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust
of India with assets under management of Rs.29,835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme, assured return and certain other
schemes. The Specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does not come
under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund
Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions
under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had
in March 2000 more than Rs.76,000 crores of assets under management and with the
setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and
with recent mergers taking place among different private sector funds, the mutual fund
industry has entered its current phase of consolidation and growth. As at the end of
September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under
421 schemes.

The graph indicates the growth of assets over the years.

44
Note - Erstwhile UTI was bifurcated into UTI Mutual fund and the Specified
Undertaking of the Unit Trust of India effective from February 2003. The Assets under
management of the Specified Undertaking of the Unit Trust of India has thereof been
executed from the total assets of the industry as a whole from February 2003 onwards.

45
CHAPTER -5

Analysis

46
 1 Do you know, what is mutual fund?

Yes 95

No 5

From the above Pie Chart, it is clear that everyone is not aware about mutual
fund
. 95% people known what is mutual fund because they aware about share
market.

47
2 Is Mutual fund always risk free?

Yes 60

No 35

We know that mutual fund is not always risk free. According to the customers
who know
what is mutual fund, they also know it is not always risk free. Problem has
that some
people are not aware about mutual fund.37% people dont know it is risk free
or not.

48
3 Do you want to invest your money into the mutual fund?

Yes 78

No 17

As shown above chart 82% people want to invest money into the mutual fund
because they have interest in mutual fund, maximum customers want to
invest their money into the mutual fund because their interest decreased in
equity market as they know that in this field, risk is low compare to share
market.

49
4 . If yes, Which AMC (asset Management Company) will you prefer?

Reliance Mutual 42
fund

SBI Mutual fund 25

Others 11

From the above Pie chart, which is according to the primary data collected,
clearly shows that Preference of investors are based on high return, liquidity

50
and growth of fundi.e. investors give their preferences to that fund which
gives them high return. 54% customers like to the Reliance mutual fund. 32%
customers belief SBI mutual fund &
others mutual fund having 14% preferred.

5 among the following which mutual fund house is the better fund house in the
terms of products?

Reliance Mutual 43
fund

SBI Mutual fund 27

Others 8

51
55% people think that reliance mutul fund is the best option when it comes to the
diversified products , followed by 35% for SBI & 10% others.

6 Which fund house is better in terms of fund performance in long and short run?

Reliance Mutual 41
fund

SBI Mutual fund 26

Others 11

53% people think that reliance mutul fund provides best return in short % Long run
period , followed by 33% for SBI & 14% others.

52
7 How many AMCs mutual fund do you have?

One 42

Two 25

More Than Two 11

53
investors have more than two types mutual fund, it is 14%. They want earn

maximum profit from mutual fund. These customer want to increase number

of units and also invest other plan like saving plan.

8 Which AMC provides better service?

Reliance Mutual 44
fund

SBI Mutual fund 26

Others 8

57% respondents feels that Reliance Provides better services as compared to others.

54
9 Do you have Reliance Mutual fund?

Yes 45

No 38

45 respondents owns Reliance Mutul fund(54%).

10 Are you satisfied by the services provided by reliance mutual fund?

55
 Yes 43

No 2

96% customers of reliance are satisfied with the services provided by

Reliance Mutual fund and the rest 4% are not satisfied. Customers of today
are better educated, better informed , more discriminating, more
sophisticated and are more individualistic. What they value in a mutual fund
transaction has dramatically changed.

56
 CHAPTER-6

Findings

1)A lot of people know about mutual fund as they take it as Equities in stock market.

57
2) Some of the Respondents are not willing to invest their money in mutual funds ,
because they dont know the difference between horizon of risk in share market and
mutual funds.

3) Most of Respondents are willing to Invest their funds in mutual funds because they
know that Mutual funds are less risky as compared to equities.

4)Most of respondents buy Mutual Funds of those companies which provide them better
returns, products , flexibility and Liquidity. This shows that todays buyers are rationale
buyers.

5) Most of respondents believe that Reliance Mutual funds performance is much better
as compared to other players in market in both long and short run.

58
 CHAPTER-7

Suggestion

SUGGESTIONS TO RELIANCE MUTUAL FUND:-

59
1.An aggressive advertising campaigning should be there to encourage
more people to invest.

2. As some of the people think that mutual fund is risky so the company
should show people the advantages of the mutual fund and how it is better
than the other investment avenues.

3.There is a great potential for the mutual fund because the people are ready
to invest in the mutual fund as there is a positive responses.

4.Now a days people are investing in more of an equity fund because it

gives high return as compare to other mutual fund schemes.

5.People are preferred to invest in the long term savings when only they
have enough of surplus. They are least concerned about the others advice.
6.Reliance MF is doing comparatively very less marketing in MF industry
in compare to other players. Due to this other player are getting the
advantage. Thus it should try to increase the marketing and advertising
related activities time to time or at least at the time of new NFOs, at the
time when they are declaring dividends or at the peak time (i.e. January -
March) last quarter of financial year when people are searching for
investing instruments.
7.A very small part market has been cover by Reliance MF. It can increase
the circle of its business in small and rural areas of every state and cities of
India where they an find a huge business.
8.To uproot the investment level the company should give training
programme to financial agents who approach the investor for the
investments. And they should be aware of all the benefits of the mutual
Funds.

9.Company should undertake the Campaign, Road shows, Advertisement

60
and other type of Publicity for the effective awareness of different schemes
that are available in the market.

10.The company should arrange seminars and presentations, giving detail

idea about securities and benefits of investment in mutual fund.

61
CHAPTER-8

Conclusion

62
Reliance Equity Fund has a ability to spot the sector trends & it has
delivered handsomely. In Current status it emerged as the third best-
performing diversified equity fund.

63
REFERENCES

AND

BIBLIOGRAPHY

64
Books:-

C.R Kothari,Research Methodology.New Delhi,Vikas Publishing House pvt. Ltd.2009.

Websites:-

www.mutualfundsindia.com
www.valueresearchonline.com
www.amfi.com
www.SBIfund.com
www.reliancefund.com

65
ANNEXURE

66
 QUESTIONNAIRE

1. Do you know, what is mutual fund?

Yes

No

2. Do you want to invest your money into the mutual fund?

Yes

No

3. Is Mutual fund always risk free?

Yes

No

I dont know

4. If yes, Which AMC (asset Management Company) will you prefer?

a) Reliance mutual fund

b) SBI mutual fund

67
 c) other

5. among the following which mutual fund house is the better fund house in the
terms of products?

c) Reliance mutual fund

d) SBI mutual fund

e) Others

6. Which fund house is better in terms of fund performance in long and short run?

a) Reliance mutual fund

b) SBI mutual fund

c) other

7. How many AMCs mutual fund do you have?

a) One

b) Two

c) More than two

d) None

8. Which AMC provides better service?

a) Reliance Mutual Fund

68
 b) SBI Mutual Fund

c) Others

9. Do you hve Relince Mutul fund?

a) Yes

b) No

10. Are you satisfied by the services provided by reliance mutual fund?

a) Yes

b) No

11. What is your view about reliance mutual fund?

________________________________________________________________
___

_________________________________________________________.

Signature__________________

69